At the time of writing, the bitcoin price is around $69,000. It seems that the bulls will have every difficulty in keeping the price permanently above $69,000, the all-time high of 2021.
An important reason for this seems to lie in the current macroeconomic situation. In January and February, US inflation turned out to be higher than expected, causing the US central bank to continue to postpone the first interest rate cuts.
In theory, this development is putting pressure on the market and that is why next Wednesday may be very crucial for the bitcoin price.
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Why is next Wednesday crucial for the bitcoin price?
Interest rate cuts are good for risk assets such as bitcoin and in order to lower interest rates, the US central bank wants to see evidence that the high inflation figures of January and February are a temporary phenomenon.
Next Wednesday we will get the US Consumer Price Index (CPI) for March. It may be that these inflation figures are the most important since the US central bank started raising interest rates in March 2022.
US inflation expectations. Source: forex factory
If inflation turns out to be higher than expected (and hoped) again, we may well see not three, but two or even fewer interest rate cuts in 2024. In theory, that could be disastrous for the markets, at least in the short term.
If inflation turns out to be lower than expected, that will be fantastic news and we will probably get the first interest rate cut of this cycle in June.
Bron: CME Group
At the moment, according to the market, there is still a 53.2 percent chance of a first interest rate cut during the meeting of June 12, 2024. Next Wednesday’s inflation figures could significantly shake up these percentages and cause a lot of volatility.
Is high inflation really disastrous for bitcoin?
In the slightly longer term, the question remains to what extent it would be disastrous for the bitcoin price if inflation were to be high again next week. This means that the US central bank will keep interest rates at this elevated level for longer.
The “problem” with this is that the US government is struggling with a huge debt, much of which it will have to refinance over the next 12 months. Trillions of dollars in debt will jump from the low interest rates of the past 10 years to the relatively high interest rates that the central bank currently uses.
If the US central bank does not lower interest rates, the US government’s annual interest costs will increase extremely. This means that the annual budget deficits are growing, the debts are increasing and the cover interest costs are also rising again. In theory, this could lead to a negative debt spiral, which could become very difficult for the US dollar.
In other words, if interest rates remain at this elevated level for too long, the value of the US dollar could be detrimental. This allows investors to switch to alternatives that the government cannot print, such as bitcoin, gold, shares, real estate, art and other collectibles.
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2024-04-07 17:38:04
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